Finance Minister Makis Keravnos said on Monday that they are working towards lowering the VAT rate in general in Cyprus, adding that the government would mostly likely also further extend a measure already in place for axing rates on some products.
On Friday, an initiative to cut the VAT on certain products down to 0 per cent went into effect, as a measure to combat inflation.
The products were milk, bread, eggs, baby food, children’s nappies, adult nappies, and feminine hygiene products, which will all have no VAT for six months.
In an interview with the Greek Euronews and asked whether other products could be included in a reduced VAT scheme, Keravnos said: “This is a possibility, but what we are currently working on is another list of products and services to reduce VAT rates. This process will take a little more time. We should have the approval of the European Union and the measure should pass the parliament. It could be, for example, VAT rates currently at 19 per cent on some products drop to 13 per cent or 3 per cent.”
Commenting on the plan that went into effect on Friday, Keravnos said that it was a decision by the government to deal with inflationary prices at a national level.
“Our decision has a time duration of six months, and we expect that there will be a reduction in inflation, therefore in prices. In any case, if the [extension of the] measure is needed, it will be studied and we will take the corresponding decisions,” he said.
Asked if Cyprus has a goal for the rate of inflation, Keravnos said is to meet the criteria set out in the Maastricht agreement, which stated that inflation rates for member states to enter the eurozone area must not be more than 1.5 per cent higher than the average of the three best performing member states in terms of price stability,
“We have set goals – in accordance with the obligations that each member state of the European Union has with the four-year programs – to reach the Maastricht criteria by 2026. For inflation, our forecast is that by the end of the year it will hover just above 3 per cent. At the end of 2024 it will be at 3 per cent, maybe even lower, to reach 2.5 per cent in 2026. In April, inflation in Cyprus had fallen to 3.8 per cent,” he said.
Regarding whether the axed VAT measure will remain in place, he said that it depends on structural inflation, and also increased interest rates coming from the European Central Bank, fuel prices, and geopolitical developments, including the war in Ukraine.